- June 17, 2020
Debate Budget Deficit
Thebudget process is vital to any country since it determines thestrategies that the government will use to raise and spend funds inorder to drive the national economy. The process improves with time,where the government may choose to engage the public in the in orderto facilitate the change. Public engagement can be achieved usingdifferent strategies (such as thinking) that help the country toachieve the desired change (John, Smith & Stoker, 2009). Thedesire to increase or decrease the amount of deficit is one of thekey changes that are considered during the budget process. TheCanadian government has been trying to eliminate the deficit, butSteven Harper, the 22ndPrime Minister of Canada, increased it by $ 150 billion (Milewaski,2015).
Theidea of having a balanced or a surplus budget was entrenched in theFederal Balanced Budget Act. The act was included in the famousomnibus Bill C-59 that was passed in 2015 (Neuman, 2015). The actlimited the ability of the federal government to take expansionarymeasures before a recession could be declared. It also induced thegovernment to reduce the budget deficit, until a surplus or a balancecould be achieved, especially during recession. However, the idea ofminimizing the deficit through legislation initiated a debate amongthe stakeholders, who were concerned about the potential benefits ordemerits of such a fiscal measure. This paper will provide anargument in the favor of elimination of the budget deficit in thefinancial year 2015-16 as proposed by the government.
Adecision to eliminate the deficit from the national budget will haveseveral positive implications. First, it will reduce the risk of anincrease in taxes. Borrowing that is done to finance the deficitcomes with an interest. The interest is repaid through taxation. Theelimination of the deficit addresses this challenge by instillingdiscipline in the government spending (Clark & DeVries, 2015).For example, Germany has run its economy without a surplus budget formany years by eliminating wasteful spending (Pettinger, 2016). Thisreduces the burden on taxpayers in the long-run.
Secondly,the elimination of the deficit will help the government avoid therisks associated with the crowding-out effect. The largest proportionof the deficit that is included in the budget is financed throughborrowing. The government competes with the local investors when itdecides to borrow from the local market, which stifles investment.Peru, for example, which had a surplus of 2.2 % in 2012 and 0.4 in2014 managed to avoid the crowding-out effect by eliminating itsdeficit (Freeman, 2011). The lack competition between the governmentand investors for loans ensures that the interest rates remainrelatively low.
Third,the replacement of the deficit with a surplus protects the futuregeneration from unnecessary financial burden. Loans that are borrowedby the present government are paid by the future generation. Thisimplies that allowing them to accumulate imposes a heavy burden onthe future generations. For example, the accumulation of the publicdebt in Greece over a period of several decades subjected the countryto a significant financial crisis between 2015 and 2016, when thebalance was -10 and -7, respectively (Ozturk, 2015). This confirmsthat the government can protect the future generation from the riskof the financial crisis by replacing the current deficit with asurplus.
Fourth,a country without a budget deficit is well prepared to addressemergencies since it has a limited expenditure and surplus funds.This is demonstrated by Kuwait that has managed to stabilize itseconomy, in spite of the unexpected changes in the price of oil inthe global market (Koraytem & Kanafani, 2015). In addition, theabsence of a deficit enables the government to prepare for disastersas well as military emergencies.
Theidea of reducing or eliminating the budget deficit is controversial.There are stakeholders who support deficits and those who hold thatthey should be eliminated. However, the analysis done in this paperindicates that the absence of deficits reduces the risk of a sharpincrease in taxes, crowding out effect, and financial crisis. It alsohelps the government increase its capacity to address emergencies.
Howcan the government finance its projects after eliminating thedeficit?
Theelimination of the deficit creates a gap in the budget. This gap canbe filled by avoiding wasteful government spending (Pettinger, 2016).This ensures that public funds are channeled to priority projects.
Howcan the government enhance credibility and public confidence in thebudget process?
Anincrease in transparency and public participation in the budgetprocess helps the public develop trust in the government. Effectivepublic participation is achieved when the government empowers thecitizens and allows them to take part in the process of change (John,Smith & Stoker, 2009).
Whatshort-term effects should the government expect after eliminating thedeficit?
Theelimination of the budget deficit can only benefit the country in thelong-run. In the short-term, the government will experience financialconstraints and a limited ability to address the challenge ofunemployment (Clark & DeVries, 2015).
Whatrole can the parliament play in enhancing the budget process?
Theparliament is mandated to oversight the executive’s spending, whichenhances accountability and transparency (Clark & DeVries, 2015).This goes a long way in ensuring that all taxpayers’ money is spentcarefully, thus increasing the capacity of the government to removedeficit in the budget.
Clark,S. & DeVries, P. (2015). Restoringintegrity to the budget process.Ottawa, ON: The Magazine of the Macdonald-Laurier Institute.
Freeman,S. (2011). Budgetary priorities in Latin America: Military, health,and education spending. SipriInsight on Peace and Security,2, 1-20.
John,P., Smith, G. & Stoker, G. (2009). Nudge Nudge, think think: Twostrategies for changing civic behavior. ThePolitical Quarterly,80 (3), 361-370.
Koraytem,H. & Kanafani, N. (2015). Kuwait:FY14/15 fiscal surplus narrows to 7.5 % of GDP on lower oil prices.Kuwait: The National Bank of Kuwait.
Milewaski,T. (2015). Stephen Harper’s legacy: Good, bad, and a dose of ugly.Politics.Retrieved November 25, 2015, fromhttp://www.cbc.ca/news/politics/canada-election-2015-harper-political-obit-1.3273677
Neuman,D. (2015). Wage suppression and the Federal Balance Budget Act.Universityof Ottawa.Retrieved November 30, 2016, fromhttp://www.broadbentinstitute.ca/marclavoie/wage_suppression_federal_balanced_budget_act
Ozturk,S. (2015). Effects of global financial crisis on Greek economy:Causes of present economic and political loss of prestige.InternationalJournal of Managerial Studies and Research,3 (6), 26-35.
Pettinger,T. (2016). Germany’s current account surplus. EconomicsHelp Organization.Retrieved November 25, 2016, fromhttp://www.economicshelp.org/blog/6363/economics/germanys-current-account-surplus/